Ask Gen Y Planning: How to Manage Small Business Finances?

by Sophia Bera on May 30, 2018

This question was submitted by a reader! Do you have a money question you’d like Gen Y Planning to answer in a future blog post? Submit it to genyplanning.com/askgyp.

I’m starting a business in 2018 and one of the major things I need to learn about as an entrepreneur is managing my business’ finances and understanding tax requirements for small businesses. Is this something you could talk about? Would love to get references to books, blogs, etc. addressing these topics as well. Thanks!

As a business owner myself, I know how important good tax planning can be for entrepreneurs! These are great questions. Here are some tips for handling business finances and taxes.

  • Hire a really good accountant or tax professional to do your taxes. You don’t want to take on this responsibility. I know a lot of entrepreneurs are real do-it-yourselfers, but taxes are complicated and it’s worth spending some money to make sure everything is accurate. I don’t do my own taxes, either!
  • Keep your personal accounts separate from your business accounts. This will keep you organized and make things much easier come tax time. This means you need a business checking AND savings account (this is a great place to accumulate cash to pay your quarterly taxes).
  • Set aside at least 25% of your business or contracting income for taxes. If you don’t have a payroll set up for yourself, you’ll want a nice cushion saved up to cover your quarterly estimated tax payments.
  • Pay quarterly estimated taxes. This will allow you to avoid a failure-to-pay penalty when you file your return. It also spreads the pain of of paying taxes out, so by the time you file your annual return, you don’t have a huge tax bill.
  • Keep your accounting organized. Hire a bookkeeper to manage your business books or get a good accounting system/program, like Quickbooks or Xero. Again, it can be tough for entrepreneurs to want to pay to outsource bookkeeping, but it’s hard to handle this yourself on top of growing your business.
  • Utilize all the lawful business tax deductions and credits available to you. There are quite a few tax deductions for people who are self employed — everything from internet and cell phone bills to conference fees and professional education. A tax professional can discuss your business expenses with you and identify deductions you qualify for.
  • Make sure to double- and triple-check any tax forms you receive for services provided. These include forms like the 1099-K and 1099-MISC. You want to make sure you’re checking for errors and providing the most up-to-date forms when you file your taxes.
  • Set up a retirement account for your business. Max out an IRA or Roth IRA if you can. As your business starts to grow, consider setting up a SEP-IRA or Solo 401(k) so you can make a tax deductible contribution to reduce your taxes even more.

Here are some websites, books, and podcasts for entrepreneurs: